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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
आदेश /O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order dated 20.09.2022, passed by learned Commissioner of Income-Tax (Exemption), Bhopal [“Ld. CIT(E)”] by which the assessee’s application for grant of registration u/s 80G of Income-tax Act, 1961 has been rejected, the assessee has filed this appeal on the grounds mentioned in Appeal Memo (Form No. 36).
Heard the learned Representatives of both sides at length and case- records perused.
Seth Panaalalji Dhoolchandji Kataria Parmarthik Trust, /Ind/2022
Briefly stated the facts are such that the assessee is a Trust created on 15.08.2001. It is registered under the M.P. Public Trust Act. It was also registered by Income-tax Department u/s 12A as well as section 80G of Income-tax Act, 1961, w.e.f. 10.01.2003. However, in terms of the amendments made in Income-tax Act, 1961, it is required to obtain re-registration u/s 12A as well as 80G. Therefore, to comply with such requirements, the assessee filed two separate applications for registration u/s 12A as well as 80G. Acting on such applications, the registration u/s 12A was duly granted w.e.f. 24.09.2021, but, however, the registration u/s 80G has been denied through order dated 20.09.2022. Aggrieved, the assessee has filed this appeal and now before us.
Ld. AR representing the assessee drew our attention to the impugned order dated 20.09.2022 and showed that the Ld. CIT(E) has assigned two reasons for denial of registration, namely (i) the assessee is not doing any charitable activity except giving donations to various trusts/societies; and (ii) the donations to trusts/societies had been given from interest earned on income accumulated/set apart in earlier years which is not allowed as per Explanation to section 11(2) of the Act. According to Ld. CIT(E), these are violations of section 80G(5)(i).
Ld. AR submitted that both of these reasons assigned by Ld. CIT(E) are not valid. He made following contentions to demonstrate this:
(i) Regarding 1st reason, Ld. AR carried us to page no. 19, 25 and 29 of the Paper-Book where the copies of audited Income & Expenditure A/c of assessee- trust for the year ended 31.03.2019, 31.03.2020 and 31.03.2021 are filed. Referring to same, Ld. AR submitted that the assessee has given donations to other trusts in order to achieve its objects, which is very much evident from the captions “To Expenditure on the object of the Trust” prominently mentioned in the Income & Expenditure A/c itself. Ld. AR submitted that there are two ways of carrying out charitable activities, one directly by spending moneys on activities and other by giving donations to other trusts/societies to enable Page 2 of 6
Seth Panaalalji Dhoolchandji Kataria Parmarthik Trust, /Ind/2022 those trust and societies undertake charitable activities. Ld. AR submitted that it is the decision of assessee to adopt either or both of these two ways and the revenue authorities cannot decide the manner. He submitted that it is not a case of revenue that the assessee-trust is dormant or non-functional; in fact the assessee is supporting other trusts and societies in furtherance of its charitable activities. Ld. AR submitted that there is nothing wrong, illegal or mala fide in carrying on charitable activities by giving donations to other trusts/societies. Therefore, the allegation made by Ld. CIT(E) that the assessee is not carrying out charitable activities is baseless as also invalid.
(ii) Regarding 2nd reason, Ld. AR submitted that the CIT(E) has mis- understood the provisions of Explanation to section 11(2). He drew our attention to the relevant law which reads as under:
“Explanation, - Any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1), read with the Explanation to that sub-section, which is not applied, but is accumulated or set apart, to any trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub- clause (via) of clause (23C) of section 10, shall not be treated as application of income for charitable or religious purposes, either during the period of accumulation or thereafter”. [Emphasis added] Ld. AR submitted that the language of Explanation to section 11(2) is very clear and unambiguous. It prohibits giving donations out of “income which is accumulated or set apart” but in no way it prohibits giving donation out of “income of income which is accumulated or set apart”. Moreover, Ld. AR carried us to the aforesaid audited Income & Expenditure A/cs of three years of assessee and demonstrated that the assessee has given the impugned donations not from “income accumulated or set apart” but from different sources such as dividend, interest, income from mutual funds and income of income that was accumulated or set apart; therefore the donations given by assessee are not hit by the provision of Explanation to section 11(2). Page 3 of 6
Seth Panaalalji Dhoolchandji Kataria Parmarthik Trust, /Ind/2022
With these submissions, Ld. AR strongly contended that both of the objections raised by Ld. CIT(E) are baseless; therefore the denial of registration is unjustified. Ld. AR prayed us to quash the order passed by CIT(E) and give directions to him for grant of registration as applied for by assessee.
Per contra, Ld. DR vehemently supported the impugned order and emphasized that the CIT(E) is very much justified in denying registration to assessee when the only activity pursued by assessee is giving donations and there is no other activity.
We have considered rival contentions of both sides and perused the material held on record including the impugned order. We observe that the twin-reasons assigned by Ld. CIT(E) are fully addressed by Ld. AR. Regarding 1st reason, we find that the assessee has clearly mentioned “To Expenditure on the object of the Trust” in Income & Expenditure A/cs and the auditors have audited those statement after due verification. We also find merit in the submission of Ld. AR that there are two ways of carrying out activities, one directly by spending moneys on activities and other by giving donations to other trusts/societies to enable them undertake charitable activities and it is for the assessee to decide which method or methods to be adopted so long the method adopted by assessee is neither illegal nor prohibited by statute. It is also not a case of revenue that the assessee-trust is dormant or non-functional; in fact the assessee is giving donations to other trusts/societies in furtherance of its charitable activities. Needless to mention that the donations given to other trusts/societies is treated as a valid application of income for the purpose of giving exemption u/s 11(1)(a) and the department has accepted this in assessee’s own case year after year. Regarding 2nd reason also, we agree to the interpretation placed by Ld. AR to Explanation to section 11(2) that the said provision does not prohibit giving donations out of “income of income which is accumulated or set apart”. On factual side, we also find weightage in the submission of Ld. AR that the assessee has given donations out of current year Page 4 of 6
Seth Panaalalji Dhoolchandji Kataria Parmarthik Trust, /Ind/2022 income consisting of dividend, interest and mutual funds and not out of income which was accumulated or set apart. Ld. DR could not contradict the legal interpretation as well as factual submissions made by Ld. AR. That brings us to conclude that the twin-reasons assigned by Ld. CIT(E) for rejection of assessee’s application are not valid. Therefore, we quash the impugned order passed by CIT(E) and direct him to grant registration u/s 80G to assessee as applied for. The assessee succeeds in this appeal.
Resultantly, this appeal of assessee is allowed.
Order pronounced in the open court on 08/05/2023.